Saturday, December 21, 2013

BSE Sensex and NSE Nifty 50 index chart patterns – Dec 20, 2013

The trading week was marked by some good news and some not so good news. Every one expected the RBI Governor to raise interest rates after the woeful CPI and WPI inflation numbers. The market was surprised when interest rates were kept unchanged.

Announcement by the US Fed that QE3 bond buying program will be reduced by $10 Bn per month from Jan ‘14 (from the current $85 Bn per month) was not so good news. An earlier announcement of a possible tapering back in Jul ‘13 had led to a global sell-off in stocks.

This time around, markets seemed better prepared to absorb the tapering news. The US economy is on the road to recovery – which means exports are likely to pick up. Bulls dominated proceedings after a day’s sell-off.

Looks like the bull market is ready to climb higher.

BSE Sensex index chart

The following comments were made in last week’s analysis of the 6 months daily bar chart pattern of Sensex: “Sensex is near a support/resistance zone between 20000 and 20500. The 50 day EMA is just above this zone. The index can be expected to bounce up from the zone, but probably after correcting a bit more.”

Some times chart patterns play out just as expected. The index did correct a bit more, but received good support from its 50 day EMA. The unexpected interest rate status quo helped Sensex to bounce up, followed by selling the next day on news of the US QE3 tapering from Jan ‘14.

By the end of the week, bulls shrugged off another correction and the Sensex up move resumed. Daily technical indicators are turning bullish. MACD is about to cross above its falling signal line in positive territory. RSI has moved above its 50% level, after a brief drop below it. Slow stochastic has bounced up from the edge of its oversold zone.

The correction provided another adding opportunity. The index should move up to touch a new high.

NSE Nifty 50 index chart

Bulls seem to be in full control of the 2 years weekly bar chart pattern of Nifty. The previous week’s ‘reversal week’ pattern was negated by another ‘reversal week’ (lower low, higher close) pattern. The possibility of such a behaviour was mentioned in last week’s analysis:

“A reversal pattern usually marks the end of an intermediate trend, but there are a couple of technical reasons why the index may bounce up from here: (1) the index is within a support/resistance zone; (2) the index has pulled back towards the ‘falling wedge’ pattern from which it broke out in the previous week. Such pullbacks provide buying opportunities.”

Weekly technical indicators are in bullish zones. MACD is rising above its signal line in positive territory. RSI is above its 50% level. Slow stochastic has just slipped below its overbought zone. All three weekly EMAs are moving up and Nifty is trading above them.

The 2 years old bull market is alive and kicking, and has gained more than 40% from its Dec ‘11 low.

Bottomline? Chart patterns of BSE Sensex and NSE Nifty indices are recovering from bull market corrections after touching new lifetime highs. The corrections provided more opportunities to add fundamentally strong mid-cap and small-cap stocks. Both indices should move up to touch new highs soon.

(Note: Still afraid to buy stocks? It is a bull market! Learn how to pick fundamentally strong mid-cap and small-cap stocks. Become a paid subscriber to my Monthly Investment Newsletter. A limited number of new subscriptions will be offered during Jan. 2014. Pre-registration has started. Contact me for details:mobugobu@yahoo.com)